Comments on: The history of the ’safety valve’ debate http://climateprogress.org/2008/03/12/the-history-of-the-safety-valve-debate/ The Latest on Climate Science, Solutions, and Politics Mon, 15 Mar 2010 03:52:51 -0400 http://wordpress.org/?v=2.8.5 hourly 1 By: valve http://climateprogress.org/2008/03/12/the-history-of-the-safety-valve-debate/#comment-225775 valve Tue, 08 Dec 2009 08:46:39 +0000 http://climateprogress.org/2008/03/12/the-history-of-the-safety-valve-debate/#comment-225775 good, The history of the ’safety valve’ debate good, The history of the ’safety valve’ debate

]]> By: Peter Wood http://climateprogress.org/2008/03/12/the-history-of-the-safety-valve-debate/#comment-9388 Peter Wood Thu, 13 Mar 2008 13:37:43 +0000 http://climateprogress.org/2008/03/12/the-history-of-the-safety-valve-debate/#comment-9388 Roughly speaking, there are two types of hybrid schemes which combine a tax (regulating price) with cap-and-trade (regulating quantities). One (the safety valve approach) has a cap-and-trade scheme with a ceiling on the price. The other approach is to have a cap-and-trade scheme with a price floor. Having a ceiling and a floor is also a possibility. All of these approaches attempt to have a carbon price that approximates the social cost of carbon in the presence of uncertainty. The idea of a safety valve in theory is that it should be higher than the social cost of carbon and hence the carbon price will be closer to the social cost of carbon. It seems to me that Weitzman's recent work on the role of "long tails" when estimating the expected loss of utility from climate change means that the expected social cost of carbon will be significantly higher that carbon prices in existing emission trading schemes or existing proposals for a safety valve (such as McKibbin and Wilcoxen's proposal). The effect of long tails suggests that the expected social cost of carbon is a function of Weitzman's "Value of Statistical Life" parameter (roughly based on the value of life on Earth or civilization as we know it) which is a weird idea but seems better than truncating long tails at some arbitrary value. Because of this I am not concerned about a carbon price exceeding the expected social cost of carbon. Having a floor on the price of carbon seems like a much better idea. That way if abatement turns out to be cheap, or some sort of event like an aluminium smelter closing down leads to the cap being achieved and the short term carbon permit price collapsing, there will still be more possibilities for climate change mitigation. A floor would also provide greater certainty for investment decisions in low emissions technologies. I have seen some proposals for a floor implemented by governments buying back permits, but it seems to me that a better way of achieving a floor would be to have a cap-and-trade scheme and a tax. That would meet the 'polluter pays' principle. It would also make it easier to budget for how to spend the money raised from auctioning permits. Roughly speaking, there are two types of hybrid schemes which combine a tax (regulating price) with cap-and-trade (regulating quantities). One (the safety valve approach) has a cap-and-trade scheme with a ceiling on the price. The other approach is to have a cap-and-trade scheme with a price floor. Having a ceiling and a floor is also a possibility. All of these approaches attempt to have a carbon price that approximates the social cost of carbon in the presence of uncertainty.

The idea of a safety valve in theory is that it should be higher than the social cost of carbon and hence the carbon price will be closer to the social cost of carbon. It seems to me that Weitzman’s recent work on the role of “long tails” when estimating the expected loss of utility from climate change means that the expected social cost of carbon will be significantly higher that carbon prices in existing emission trading schemes or existing proposals for a safety valve (such as McKibbin and Wilcoxen’s proposal). The effect of long tails suggests that the expected social cost of carbon is a function of Weitzman’s “Value of Statistical Life” parameter (roughly based on the value of life on Earth or civilization as we know it) which is a weird idea but seems better than truncating long tails at some arbitrary value. Because of this I am not concerned about a carbon price exceeding the expected social cost of carbon.

Having a floor on the price of carbon seems like a much better idea. That way if abatement turns out to be cheap, or some sort of event like an aluminium smelter closing down leads to the cap being achieved and the short term carbon permit price collapsing, there will still be more possibilities for climate change mitigation. A floor would also provide greater certainty for investment decisions in low emissions technologies.

I have seen some proposals for a floor implemented by governments buying back permits, but it seems to me that a better way of achieving a floor would be to have a cap-and-trade scheme and a tax. That would meet the ‘polluter pays’ principle. It would also make it easier to budget for how to spend the money raised from auctioning permits.

]]> By: Joe http://climateprogress.org/2008/03/12/the-history-of-the-safety-valve-debate/#comment-9387 Joe Thu, 13 Mar 2008 11:36:31 +0000 http://climateprogress.org/2008/03/12/the-history-of-the-safety-valve-debate/#comment-9387 Thanks for these commentss. I'm working on a big article on peak oil. Thanks for these commentss.
I’m working on a big article on peak oil.

]]> By: Ronald http://climateprogress.org/2008/03/12/the-history-of-the-safety-valve-debate/#comment-9386 Ronald Thu, 13 Mar 2008 09:28:07 +0000 http://climateprogress.org/2008/03/12/the-history-of-the-safety-valve-debate/#comment-9386 Wow. I suppose the best safety valve would be to make it voluntary. Or as McCain would tell you, he is for Cap and Trade, but nothing mandatory. We should no longer say ‘Nero fiddled while Rome burned,’ the saying ought to be ‘they negotiated while the planet heated up.’ Argue, debate and negotiate until the planet is burned to a crisp. My property taxes went up 9 percent this year with not much negotiation at all. What we should have is a freeze on any tax increases in America except for government only being able to raise money by increasing a carbon tax. If my property taxes are raised to only bring in more money fro government, then how much better would it be to raise a carbon tax that brings in money into the government and helps save the planet and future generations at the same time. Wow. I suppose the best safety valve would be to make it voluntary. Or as McCain would tell you, he is for Cap and Trade, but nothing mandatory.

We should no longer say ‘Nero fiddled while Rome burned,’ the saying ought to be ‘they negotiated while the planet heated up.’

Argue, debate and negotiate until the planet is burned to a crisp. My property taxes went up 9 percent this year with not much negotiation at all. What we should have is a freeze on any tax increases in America except for government only being able to raise money by increasing a carbon tax. If my property taxes are raised to only bring in more money fro government, then how much better would it be to raise a carbon tax that brings in money into the government and helps save the planet and future generations at the same time.

]]> By: John Mashey http://climateprogress.org/2008/03/12/the-history-of-the-safety-valve-debate/#comment-9385 John Mashey Thu, 13 Mar 2008 06:14:51 +0000 http://climateprogress.org/2008/03/12/the-history-of-the-safety-valve-debate/#comment-9385 Safety valves seem *really* stupid, and hardly anyone wants to talk about the elephant in the room, which is Peak Oil+Gas and relationship of energy to GDP. Stern [p.183] assumes IPCC A2, or GDP CAGR of about 1.9%/year, which means than in 2100, it's 1.019^92 = 5.6X bigger than now. IPCC Emissions Scenarios p.196-197 seems slightly different, but almost everybody seems to assume "Everybody will be rich, so it won't hurt too much to defer mitigation and let those rich future people pay for adaptation." I just don't see why economic growth rates based on a history of increasing fossil energy naturally get projected forward. On the other hand, economists like Charlie Hall and (Robert Ayres + Benjamin Warr) make pretty good cases (see * below)) that: The biggest factor in GDP growth is energy growth (or more precisely, exergy = energy * efficiency), and even with every bit of efficiency improvement we can get, in the presence of Peak Oil and Gas, and climate-necessary coal-restrictions mean a huge fossil energy-downturn that we have to work very hard to replace. And THAT means that it's not obvious that the world's GDP will be 5X bigger. Even if it did, goods are not arbitrarily substitutable. I.e., maybe you'll buy a Terabyte iPod for nothing, but if you need to buy earthmoving for dikes (CA has 1000+ Miles of dikes), or steel+concrete for sea-walls, or rebuild New Orleans elsewhere in 2100, you'll be doing it without much petroleum... and it will not be cheap. [Not impossible, just not cheap.] Now, if the population could get under control, and after we redo our whole energy infrastucture, maybe the exergy/person will start going up again. But Charlie Hall's Balloon Chart shows how far we have to go: http://scitizen.com/screens/blogPage/viewBlog/sw_viewBlog.php?idTheme=14&idC ontribution=1305 So, in worrying about this, am I missing something obvious? CA is already worried about how to pay for all the dikes and water infrastructure we'll need just to stay even.... and CA is pretty wealthy. ===== (some refs, I'm sure Joe knows these, but other readers may not)=== Peak Oil http://en.wikipedia.org/wiki/Peak_oil is actually not bad http://www.theoildrum.com/ best blog http://www.davidstrahan.com/blog/?p=40 an interview with Lord Ron Oxburgh, ex-rector of Imperial College, ex-Chairman of Shell, and a long-time friend of ours. http://www.davidstrahan.com/index.html , David Strahan's book "The Last Oil Shock" is very good. ASPO: http://www.peakoil.net/ Kenneth S. Deffeyes, "Beyond Oil, the View from Hubbert's Peak", Princeton Emeritus Prof, used to work with Hubbert @ Shell research. Much is actually about other energy sources. Matthew R. Simmons, "Twilight in the Desert" or why there's not as much extractable oil in Saudi Arabia as people think. The Hirsch Report for the DOE, or the economic consequences of not starting conversion 20 years pre-Peak http://en.wikipedia.org/wiki/Hirsch_report Nobel Physicist Burton Richter gave a talk locally on climate & energy: http://www-group.slac.stanford.edu/do/brichter/presentations/2004_10_05.htm When Nobel physicists talk, I tend to listen to them. Charlie Hall: http://www.esf.edu/EFB/hall/ http://www.esf.edu/efb/hall/talks/EROI6a.ppt Two related papers on economics that are very important: neoclassical economics is broken. Bottom Line: wealth ~ exergy = energy*efficiency, plus some help from technology, capital, and labor. *Hall, et al, "The Need to Reintegrate the Natural Sciences with Economics" http://www.ker.co.nz/pdf/Need_to_reintegrate.pdf *Ayres & Warr, "Accounting for Growth: the Role of Physical Work" http://www.iea.org/Textbase/work/2004/eewp/Ayres-paper1.pdf Jeff Rubin and Benjamin Tal, "Soaring Oil Prices Will Make The World Rounder", http://research.cibcwm.com/economic_public/download/occ_55.pdf Forget about these worldwide JIT supply chains. Fuel prices have already eaten tariff reductions. Maybe relocalization is good, but doing it is going to require $$ investment. Nicholas SAtern, "The Economics of Climate Change." Safety valves seem *really* stupid, and hardly anyone wants to talk about the elephant in the room, which is Peak Oil+Gas and relationship of energy to GDP.

Stern [p.183] assumes IPCC A2, or GDP CAGR of about 1.9%/year, which means than in 2100, it’s 1.019^92 = 5.6X bigger than now. IPCC Emissions Scenarios p.196-197 seems slightly different, but almost everybody seems to assume “Everybody will be rich, so it won’t hurt too much to defer mitigation and let those rich future people pay for adaptation.” I just don’t see why economic growth rates based on a history of increasing fossil energy naturally get projected forward.

On the other hand, economists like Charlie Hall and (Robert Ayres + Benjamin Warr) make pretty good cases (see * below)) that:

The biggest factor in GDP growth is energy growth (or more precisely, exergy = energy * efficiency), and even with every bit of efficiency improvement we can get, in the presence of Peak Oil and Gas, and climate-necessary coal-restrictions mean a huge fossil energy-downturn that we have to work very hard to replace. And THAT means that it’s not obvious that the world’s GDP will be 5X bigger.

Even if it did, goods are not arbitrarily substitutable. I.e., maybe you’ll buy a Terabyte iPod for nothing, but if you need to buy earthmoving for dikes (CA has 1000+ Miles of dikes), or steel+concrete for sea-walls, or rebuild New Orleans elsewhere in 2100, you’ll be doing it without much petroleum… and it will not be cheap. [Not impossible, just not cheap.]

Now, if the population could get under control, and after we redo our whole energy infrastucture, maybe the exergy/person will start going up again. But Charlie Hall’s Balloon Chart shows how far we have to go:

http://scitizen.com/ screens/ blogPage/ viewBlog/ sw_viewBlog.php?idTheme=14&idC
ontribution=1305

So, in worrying about this, am I missing something obvious? CA is already worried about how to pay for all the dikes and water infrastructure we’ll need just to stay even…. and CA is pretty wealthy.

===== (some refs, I’m sure Joe knows these, but other readers may not)===

Peak Oil
http://en.wikipedia.org/wiki/Peak_oil is actually not bad http://www.theoildrum.com/ best blog

http://www.davidstrahan.com/blog/?p=40 an interview with Lord Ron Oxburgh, ex-rector of Imperial College, ex-Chairman of Shell, and a long-time friend of ours.

http://www.davidstrahan.com/index.html , David Strahan’s book “The Last Oil Shock” is very good.

ASPO: http://www.peakoil.net/

Kenneth S. Deffeyes, “Beyond Oil, the View from Hubbert’s Peak”, Princeton Emeritus Prof, used to work with Hubbert @ Shell research. Much is actually about other energy sources.

Matthew R. Simmons, “Twilight in the Desert” or why there’s not as much extractable oil in Saudi Arabia as people think.

The Hirsch Report for the DOE, or the economic consequences of not starting conversion 20 years pre-Peak http://en.wikipedia.org/wiki/Hirsch_report

Nobel Physicist Burton Richter gave a talk locally on climate & energy:
http://www-group.slac.stanford.edu/ do/ brichter/ presentations/ 2004_10_05.htm
When Nobel physicists talk, I tend to listen to them.

Charlie Hall:
http://www.esf.edu/EFB/hall/
http://www.esf.edu/efb/hall/talks/EROI6a.ppt

Two related papers on economics that are very important: neoclassical economics is broken. Bottom Line: wealth ~ exergy = energy*efficiency, plus some help from technology, capital, and labor.

*Hall, et al, “The Need to Reintegrate the Natural Sciences with Economics”
http://www.ker.co.nz/pdf/Need_to_reintegrate.pdf

*Ayres & Warr, “Accounting for Growth: the Role of Physical Work”
http://www.iea.org/ Textbase/ work/ 2004/ eewp/ Ayres-paper1.pdf

Jeff Rubin and Benjamin Tal, “Soaring Oil Prices Will Make The World Rounder”, http://research.cibcwm.com/ economic_public/ download/ occ_55.pdf

Forget about these worldwide JIT supply chains. Fuel prices have already eaten tariff reductions. Maybe relocalization is good, but doing it is going to require $$ investment.

Nicholas SAtern, “The Economics of Climate Change.”

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